The Left’s Idea For The Economy: Fixing Heartburn With Heart Transplant Surgery

William Greider over at the Nation wrote a short, but wacky piece called Goodbye Keynes, Hello Hoover that’s just so off-the-mark it demanded a response,

The first fundamental failure of Keynesian economics occurred forty years ago during the Vietnam War when the economy was overheating but the political system failed to take the corrective steps that would restrain price inflation–that is, raise taxes and reduce federal spending. The decade of economic stagnation that followed became a central factor in discrediting both liberalism and the Democratic Party.

We are now witnessing a second great failure of the doctrine John Maynard Keynes devised for managing a healthy economy. This time, Washington faces the opposite problem–a starkly underperforming economy in which 10 percent of the workforce are without jobs and income. Yet the President and Democratic Congress, spooked by the swollen federal deficits, are unwilling to do what Keynes prescribed in these circumstances–pump up federal spending enormously and run even larger budget deficits in order to force-feed a stronger recovery.

The results of this political decision will be tragic for millions of struggling families, but also potentially devastating for the Democratic party. Democrats are implicitly choosing to do nothing more to rescue the country from the deepening dislocations and lost output. Making mistakes can be forgiven, but not giving up.

…This represents a failure of politics, not of the Keynesian logic. But the distinction hardly matters to ordinary folks. If the political system can never find the stomach to deliver the hard medicine that Keynes prescribes, what good is the doctrine for governing?

…This time, Barack Obama will not have good excuses. If the economy slips back into recession or simply stagnates for many years, forfeiting potential production, jobs and incomes, the president will rightly be the goat. Deficits are the cure, not the disease, as many of us have been writing for months. It’s true the red ink upsets people who cluck and express alarm. But no political party ever lost a national election on the deficit issue. Ronald Reagan’s feel-good deficits made the opposite point.

Obama’s governing problem is that he tries to have it both ways. His presidency started with stimulus spending, but far short of what even some of his own economists said would be needed. Then the president swiftly took up the other side of the argument and joined the chorus of deficit hawks, bemoaning the red ink and promising to do something about it (like maybe by cutting Social Security?).

Obama, instead of making the case for continuing stimulus with clarity and conviction, sends cloudy mixed signals. The White House makes cozy with Blue Dog Democrats and right-wing Republicans. The president refused to give strong instructions to Congress and, not surprisingly, nervous members of Congress took this as permission for them to duck too. The net effect will be emasculated stimulus legislation, too trivial to do much of anything for the economy.

Pointing out all the things that are wrong with this piece could easily take up a thousand words, so let’s just hit some of the high spots.

#1) According to Greider, Keynes’ : ideas don’t seem to work in the real world not because they’re deeply flawed, but because his adherents in the government don’t stick to them closely enough. That sort of reminds me of the old liberal view of : communism: It’s a great philosophy, but it just hasn’t been tried by the right people yet.

#2) Keynesian stimulus plans don’t work. They didn’t work in the past, they’re not working now, and they wouldn’t work if Obama tried a bigger one in the future. Many, many people, myself included, said exactly that before the stimulus plan was passed. Guess what? We were exactly right. The people who supported the stimulus plan? They were wrong.

#3) There’s a very good reason to be “spooked by the swollen federal deficits.” It’s called Greece. Unless we make some hard changes, none of which we’re attempting at the moment, it could conceivably be only years, not decades away from happening here.

#4) “But no political party ever lost a national election on the deficit issue.” That’s true. Of course, no President in American history has ever come close to spending this recklessly either. When Americans become afraid, with good reason, that the government is spending so much money it may be headed towards bankruptcy like Argentina or Post World War 1 Germany, they’re very capable of voting a political party out of office over the deficit issue.

#5) “The White House makes cozy with Blue Dog Democrats and right-wing Republicans.” Really? Seriously? He’s been engaged in an all out political war with conservatives and as for the blue dogs, they’re going to be massacred in November for supporting his agenda.

#6) Last but not least, the whole idea that’s being pushed here on the Left, that we should run up deficits that are so large that it’ll take decades to pay them off in order to jumpstart the economy out of a temporary recession — it’s madness. What people like Greider want to do is akin to a doctor suggesting a heart transplant to deal with heartburn. Recessions have always occurred in America and although they’re unpleasant, they don’t last forever. To do long term damage to the country to try to fix a recession is a terrible idea.

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